Testimony 

Before the Subcommittee on Oversight, 

Committee on Ways and Means, House of 

Representatives

United States General Accounting Office 

GAO

For Release on Delivery 

Expected at 9:00 a.m. EST 

Thursday, February 12, 2004 BUSINESS SYSTEMS 

MODERNIZATION 

Internal Revenue Service 

Needs to Further 

Strengthen Program 

Management 

Statement of Robert F. Dacey 

Director, Information Security Issues 

GAO-04-438T 
www.gao.gov/cgi-bin/getrpt?GAO-04-438T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Robert F. 

Dacey at (202) 512-3317 or daceyr@gao.gov. 

Highlights of GAO-04-438T, testimony 

before the Subcommittee on Oversight, 

House Committee on Ways and Means 

February 12, 2004 

BUSINESS SYSTEMS MODERNIZATION 

Internal Revenue Service Needs to 

Further Strengthen Program Management 

Prior GAO reviews have disclosed numerous modernization management 

control deficiencies that have contributed to reported cost overruns and 

schedule delays. The table below illustrates the degree to which costs and 

completion dates for ongoing projects have grown from their initial estimates. 

Reasons for such delays include inadequate definition of systems requirements, 

increases in project scope, and underestimation of project complexity. These 

impair IRS’s ability to make future systems investment decisions and delay 

delivery of benefits to taxpayers. GAO has made a series of recommendations 

focusing on stronger program management—and limiting modernization 

activities until such management practices were in place. 

IRS BSM Project Cost/Schedule Variance Summarya

 

Project 

Cost 

variance 

(in thousands) 

Revised 

estimated cost 

(in thousands) 

Schedule 

variance

(in months)

 

Revised estimated 

completion date 

Modernized e-File 

Rel. 1 +$17,057 $46,303 +4.5

 3/31/04 

(initial operationb

) 

e-Services +86,236 130,281 +18

 4/30/05 

(full deploymentc) 

Customer Account 

Data Engine Rel. 1 +36,760 97,905 +30d

 6/30/05d

(full deployment) 

Custodial 

Accounting Project 

Rel. 1 +72,058 119,219 TBDd

TBDd 

(full deployment) 

Integrated 

Financial System 

Rel. 1 +53,916 153,786 TBDd

TBDd 

(full deployment) 

Customer Account 

Management 

Rel. 1 TBDe

 TBDe TBDe TBDe

Source: GAO analysis of IRS data. 

a Projects ongoing as of 9/30/03. 

b Initial operation refers to the point at which a project is authorized to begin enterprisewide deployment. 

c Full deployment refers to the point at which enterprisewide deployment has been completed and a project is transitioned to 

operations and support. 

d Project schedules for the Customer Account Data Engine, the Custodial Accounting Project, and the Integrated Financial System 

are currently under review. 

e To be determined. Work on the Customer Account Management project was suspended following the completion of preliminary 

design activities. No further work is planned until at least fiscal year 2005. 

IRS has made important progress in implementing management controls, 

establishing infrastructure, delivering certain business applications, and 

balancing the pace of the program with the agency’s ability to manage it. 

Nevertheless, IRS needs to further strengthen BSM program management, 

including fully implementing modernization management controls in such areas 

as cost and schedule estimating. 

The recent BSM assessments identified many weaknesses, consistent with prior 

GAO findings, that contributed to the cost overruns and schedule delays, and 

offered recommendations to address them. IRS has responded by identifying 46 

discrete issues to be resolved; according to the agency, 27 of these have been 

completed. Commitment of appropriate resources, top management attention, 

and continuing oversight by Congress and others are critical to the success of 

BSM. 

The Internal Revenue Service (IRS) 

has been grappling with 

modernizing its computer systems 

for many years. IRS’s current 

program, commonly referred to as 

Business Systems Modernization 

(BSM), began in fiscal year 1999; 

about $1.4 billion has been 

reported spent on it to date. While 

progress has been made, the 

program continues to face 

significant challenges and risks. 

In recognition of these risks, IRS 

and a contractor recently 

completed several comprehensive 

assessments of BSM, including one 

of its Customer Account Data 

Engine (CADE) project, which is to 

modernize the agency’s outdated 

data management system. 

At the request of the Subcommittee 

on Oversight, House Committee on 

Ways and Means, GAO’s testimony 

will summarize (1) GAO’s prior 

findings and recommendations, 

along with those of the recent 

assessments; and (2) actions IRS 

has taken or plans to take to 

address these issues. 
Page 1 GAO-04-438T 

Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to discuss the Internal Revenue Service’s 

(IRS) actions to modernize its computer systems. Although updated 

through the years, IRS’s set of computer systems is based on an 

architecture that dates from the 1960s. This architecture has inhibited 

IRS’s ability to effectively and efficiently perform its mission of providing 

service to taxpayers and enforcing the nation’s tax laws. However, IRS’s 

attempts to modernize its computer systems and underlying architecture 

now span three decades. Given the long history of continuing delays and 

design difficulties, we previously designated IRS’s modernization program 

as a high-risk area in 1995.1

 It remains so today.2

IRS’s current multibillion-dollar effort, known as the Business Systems 

Modernization (BSM) program, was initiated in fiscal year 1999. IRS 

contracted with Computer Sciences Corporation (CSC) as the prime 

contractor to assist with designing, developing, and integrating a new set 

of information systems that were intended to replace IRS’s aging business 

and tax processing systems. To date, about $1.7 billion has been 

appropriated for the program, including about $388 million for fiscal year 

2004.3

To facilitate congressional oversight of this program, annual 

appropriations laws since fiscal year 1998 have mandated that 

modernization funds not be available until IRS submits to the 

congressional appropriations committees for approval a modernization 

expenditure plan that satisfies six legislative conditions, including that it 

be reviewed by us.4

 We are currently reviewing the fiscal year 2004 BSM 

 1

U.S. General Accounting Office, High-Risk Series: An Overview, GAO/HR-95-1

(Washington, D.C.: February 1995). 

2

U.S. General Accounting Office, High-Risk Series: An Update, GAO-03-119 (Washington, 

D.C.: January 2003). 

3

P.L. 108-199, Div. F, Title II, Jan. 23, 2004. IRS uses the appropriated totals to cover 

contractor costs related to the BSM program. IRS funds internal costs for managing BSM 

with another appropriation. These costs are not tracked separately for BSM-related 

activities. 

4

The other five legislative conditions are that the expenditure plan (1) meets Office of 

Management and Budget’s (OMB) capital planning and investment control review 

requirements; (2) complies with IRS’s enterprise architecture; (3) conforms with IRS’s 

enterprise life cycle methodology; (4) is approved by IRS, Treasury, and OMB; and (5) 

complies with federal acquisition rules, requirements, guidelines, and system acquisition 

management practices. 
Page 2 GAO-04-438T 

expenditure plan. During our past reviews of such plans, we have noted 

numerous modernization management control deficiencies and made 

recommendations to correct them. Although IRS has made progress in 

implementing our recommendations, BSM continues to face significant 

challenges and serious risks. Recognizing these risks, IRS and CSC 

recently completed several in-depth and more comprehensive assessments 

on the health of the BSM program, including an independent technical 

assessment of the Customer Account Data Engine (CADE) project, a 

project critical to the success of BSM. IRS has developed an action plan to 

address the assessments’ recommendations, and has begun to act on it. 

In my testimony today I will summarize our prior findings and 

recommendations and those of the recently completed program 

assessments. I will also discuss the actions IRS reports it has taken or 

plans to take to address issues raised by these assessments. 

In preparing this testimony, we relied on our prior reports and testimony 

on IRS’s systems modernization activities and BSM expenditure plans. We 

also reviewed and analyzed information contained in the BSM expenditure 

plan for fiscal year 2004; Carnegie Mellon University Software Engineering 

Institute’s (SEI) independent technical assessment of CADE; reports on 

the BSM program by the Treasury Inspector General for Tax 

Administration and the IRS Oversight Board; and IRS briefing materials (1) 

analyzing the root causes of BSM project cost increases and schedule 

delays, (2) independent reviews of CSC’s business processes and IRS’s 

procurement practices, and (3) IRS’s action plan to address issues 

identified by the reviews. We did not independently validate planned 

projects’ cost estimates or confirm, through system and project 

management documentation, the validity of IRS-provided information on 

the projects’ content and progress. Our work was performed during the 

past month, in accordance with generally accepted government auditing 

standards. 

The tax administration system that collects about $2 trillion in revenues 

each year is critically dependent on a collection of obsolete computer 

systems developed by the IRS over the last 40 years. IRS envisions a future 

in which its tax processing environment will be virtually paper-free, and 

up-to-date taxpayer information will be readily available to IRS employees 

to respond to taxpayer inquiries. To accomplish this, IRS embarked on its 

ambitious BSM program. BSM involves the development and delivery of a 

number of modernized business, data, and core infrastructure projects 

that are intended to provide improved and expanded service to taxpayers 

Background 
Page 3 GAO-04-438T 

as well as IRS internal business efficiencies. Recognizing the long-term 

commitment needed to solve the problem of obsolete computer systems, 

Congress set up a special BSM account in fiscal year 1998 to fund IRS’s 

systems modernization efforts. 

IRS initiated CADE as part of BSM, to modernize the agency’s outdated 

and inefficient data management system.5

 IRS also sees this project as the 

corporate data source enabling future customer service and financial 

management applications. CADE is therefore IRS’s linchpin modernization 

project. In light of the projects that depend on CADE, as well as the many 

interrelationships that are to exist among CADE and IRS’s modernized 

applications and among CADE and current IRS applications, the agency 

must manage this critical project effectively. Without CADE, the business 

systems modernization program cannot succeed. 

IRS’s attempts to modernize its aging computer systems span several 

decades. This long history of continuing delays and design difficulties led 

to our designating IRS’s Tax Systems Modernization program, BSM’s 

predecessor, as a high-risk area in 1995.6

 During the mid-1990s we reported 

on several technical and management weaknesses associated with Tax 

Systems Modernization, a program that began in the 1980s. These 

weaknesses related to incomplete or inadequate strategic information 

management practices; immature software development capability; 

incomplete systems architecture, integration planning, system testing, and 

test planning practices; and the lack of an effective organizational 

structure to consistently manage and control systems modernization 

organizationwide. We made a series of recommendations for correcting 

these weaknesses and limiting modernization activities until they were 

corrected.7

 IRS subsequently discontinued the program after the agency 

had spent about $4 billion without receiving expected benefits. In fiscal 

 5

The current system—referred to by IRS as the master files—contains taxpayer account 

and return data. There are master files for individuals, businesses, and employer retirement 

plans. A nonmaster file for taxpayer data also exists that cannot be stored in the other 

master files due to data format and space limitations. 

6

GAO/HR-95-1. 

7

U.S. General Accounting Office, Tax Systems Modernization: Management and 

Technical Weaknesses Must Be Corrected If Modernization Is to Succeed, 

GAO/AIMD-95-156 (Washington, D.C.: July 26, 1995) and Tax Systems Modernization: 

Blueprint Is a Good Start, But Not Yet Sufficiently Complete to Build or Acquire 

Systems, GAO/AIMD/GGD-98-54 (Washington, D.C.: Feb. 24, 1998). 

IRS Has Made 

Improvements, But 

Systems 

Modernization 

Program Remains 

High-Risk 
Page 4 GAO-04-438T 

year 1999, IRS launched the BSM program. IRS contracted with CSC as its 

prime systems integration services contractor for systems modernization, 

helping it design new systems and identify other contractors to develop 

software and perform other tasks. 

In our reviews of IRS’s BSM expenditure plans, we have identified 

numerous deficiencies in the BSM program, including a continuation of 

the weaknesses noted above. Also, a consistent challenge for IRS has been 

to make sure that the pace of systems acquisition projects does not exceed 

the agency’s ability to manage them. In May and November 2000, we 

reported that projects were in fact getting ahead of the modernization 

management capacity that needed to be in place to manage them 

effectively.8

 In February 2002 we reported that such an imbalance was due 

to IRS’s first priority and emphasis being on getting the newer, more 

modern systems—with their anticipated benefits to taxpayers—up and 

running.9

 In so doing, however, management controls had not been given 

equal attention and thus had not kept pace. This emphasis on new systems 

added significant cost, schedule, and performance risks that escalate as a 

program advances. Moreover, these risks increased as IRS moved forward 

because of interdependencies among projects, and the complexity of 

associated workload activities to be performed increased dramatically as 

more systems projects were built and deployed. 

In addition, we identified other deficiencies in the BSM program, including 

the need to establish processes that meet the level 2 requirements of the 

SEI’s Software Acquisition Capability Maturity Model,

10 and to improve 

modernization management controls and capabilities, such as those 

related to configuration management, risk management, enterprise 

 8

U.S. General Accounting Office, Tax Systems Modernization: Results of Review of IRS’ 

March 7, 2000, Expenditure Plan, GAO/AIMD-00-175 (Washington, D.C.: May 24, 2000) and 

Tax Systems Modernization: Results of Review of IRS’ August 2000 Interim Spending 

Plan, GAO-01-91 (Washington, D.C.: Nov. 8, 2000). 

9

U.S. General Accounting Office, Business Systems Modernization: IRS Needs to Better 

Balance Management Capacity with Systems Acquisition Workload, GAO-02-356

(Washington, D.C.: Feb. 28, 2002). 

10Carnegie Mellon University’s Software Engineering Institute has developed criteria, 

known as the Software Acquisition Capability Maturity Model, for determining 

organizations’ software acquisition management effectiveness or maturity. A Level 2 

organization has established its basic project management processes in the following key 

process areas: acquisition planning, solicitation, requirements development and 

management, project management, contract tracking and oversight, evaluation, and 

transition to support. 
Page 5 GAO-04-438T 

architecture implementation, human capital strategic management, 

integrated program scheduling, and cost and schedule estimating. 

In response to our recommendations, IRS has made important progress. 

First, significant progress has been made in establishing the modernization 

management controls needed to effectively acquire and implement 

information technology systems. For example, IRS has 

• invested incrementally in its modernization projects; 

• defined a systems life cycle management methodology, which IRS 

refers to as the Enterprise Life Cycle; 

• developed and is using a modernization blueprint, commonly called an 

enterprise architecture, to guide and constrain its modernization 

projects; and 

• established processes that meet the level 2 requirements of the SEI’s 

Software Acquisition Capability Maturity Model. 

Second, IRS has made progress in establishing the infrastructure systems 

on which future business applications will run. For example, IRS has 

delivered elements of the Security and Technology Infrastructure Release 

to provide the hardware, software, and security solutions for 

modernization projects. IRS has also built an enterprise integration and 

test environment that provides the environment and tools for multiple 

vendors associated with a release to perform integration and testing 

activities. 

Third, it has delivered certain business applications that are producing 

benefits today. These applications include 

• Customer Communications 2001, to improve telephone call 

management, call routing, and customer self-service applications; 

• Customer Relationship Management Examination, to provide off-theshelf software to IRS revenue agents to allow them to accurately 

compute complex corporate transactions; and 

• Internet Refund/Fact of Filing, to improve customer self-service by 

providing to taxpayers via the Internet instant refund status 

information and instructions for resolving refund problems. 
Page 6 GAO-04-438T 

Fourth, IRS took steps to align the pace of the program with the maturity 

of IRS’s controls and management capacity, including reassessing its 

portfolio of planned projects. 

Nevertheless, IRS continued to face challenges to fully develop and 

implement its modernization management capacity. Last June we reported 

that IRS had not yet fully implemented a strategic approach to ensuring 

that it has sufficient human capital resources for implementing BSM, nor 

had it fully implemented management controls in such areas as 

configuration management, estimating costs and schedules, and employing 

performance-based contracting methods.11 We made several 

recommendations to address those issues. Our analysis has shown that 

weak management controls contributed directly to the cost, schedule, 

and/or performance shortfalls experienced by most projects. Given that 

the tasks associated with those projects that are moving beyond design 

and into development are by their nature more complex and risky and that 

IRS’s fiscal year 2004 BSM expenditure plan supports progress toward the 

later phases of key projects and continued development of other projects, 

systems modernization projects likely will encounter additional cost and 

schedule shortfalls. IRS will need to continue to assess the balance 

between the pace of the program and the agency’s ability to manage it. 

Based on IRS’s expenditure plans, BSM projects have consistently cost 

more and taken longer to complete than originally estimated. Table 1 

shows the life cycle variance in cost and schedule estimates for completed 

and ongoing BSM projects. These variances are based on a comparison of 

IRS’s initial and revised cost and schedule estimates to complete initial 

operation12 or full deployment13 of the projects. 

 11U.S. General Accounting Office, Business Systems Modernization: IRS Has Made 

Significant Progress in Improving Its Management Controls, but Risks Remain, 

GAO-03-768 (Washington, D.C.: June 27, 2003) 

12Initial operation refers to the point at which a project is authorized to begin 

enterprisewide deployment. 

13Full deployment refers to the point at which enterprisewide deployment has been 

completed and a project is transitioned to operations and support. 

Projects Continue to 

Incur Cost Increases 

and Schedule Delays 
Page 7 GAO-04-438T 

Table 1: IRS BSM Project Cost/Schedule Variance Summary 

Project 

Cost variance 

(in thousands) 

Reported/revised 

 estimated cost 

 (in thousands) 

Schedule 

variance 

(in months) 

Reported/revised 

estimated 

completion date 

Completed Projects 

Security and Technology Infrastructure 

Release 1 

+$7,553 $41,287 +5 1/31/02 

(initial operation) 

Customer Communications 2001 +5,310 46,420 +9 2/26/02 

(full deployment) 

Customer Relationship Management Exam -1,938 7,375 +3 9/30/02 

(full deployment) 

Human Resources Connect Release 1 +200 10,200 0 12/31/02 

(initial operation) 

Internet Refund/Fact of Filing +12,923 26,432 +14 9/26/03 

(full deployment) 

Ongoing Projectsa 

Modernized e-File Release 1 +17,057 46,303 +4.5 3/31/04 

(initial operation) 

e-Services +86,236 130,281 +18 4/30/05 

(full deployment) 

CADE Release 1 +36,760 97,905 +30b 6/30/05b

(full deployment) 

Integrated Financial System Release 1 +53,916 153,786 TBDb TBDb

(full deployment) 

Custodial Accounting Project Release 1 +72,058 119,219 TBDb TBDb

(full deployment) 

Customer Account Management Release 1 TBDc TBDc TBDc TBDc

Source: GAO analysis of data contained in IRS’s BSM expenditure plans. 

a

Projects ongoing as of 9/30/03. 

b

Project schedules for CADE, the Integrated Financial System, and the Custodial Accounting Project 

are currently under review. 

c

To be determined. Work on the Customer Account Management project was suspended following the 

completion of preliminary design activities. No further work is planned until at least fiscal year 2005. 

As the table indicates, the cost and schedule estimates for full deployment 

of the e-Services project have increased by just over $86 million and 18 

months, respectively. In addition, the estimated cost for the full 

deployment of CADE release 1 has increased by almost $37 million, and 

project completion has been delayed by 30 months. In addition to the 

modernization management control deficiencies discussed above, our 

work has shown that the increases and delays were caused, in part, by 

• inadequate definitions of systems requirements. As a result, 

additional requirements have been incorporated into ongoing projects. 

• increases in project scope. For example, the e-Services project has 

changed significantly since the original design. The scope was 
Page 8 GAO-04-438T 

broadened by IRS to provide additional benefits to internal and 

external customers. 

• cost and schedule estimating deficiencies. IRS has lacked the 

capability to effectively develop reliable cost and schedule estimates. 

• underestimating project complexity. This factor has contributed 

directly to the significant delays in the CADE release 1 schedule. 

• competing demands of projects for test facilities. Testing 

infrastructure capacity is insufficient to accommodate multiple 

projects when testing schedules overlap. 

• project interdependencies. Delays with one project have had a 

cascading effect and have caused delays in related projects. 

These schedule delays and cost overruns impair IRS’s ability to make 

appropriate decisions about investing in new projects, delay delivery of 

benefits to taxpayers, and postpone resolution of material weaknesses 

affecting other program areas. 

Producing reliable estimates of expected costs and schedules is essential 

to determining a project’s cost-effectiveness. In addition, it is critical for 

budgeting, management, and oversight. Without this information, the 

likelihood of poor investment decisions is increased. 

Schedule slippages delay the provision of modernized systems’ direct 

benefits to the public. For example, slippages in CADE will delay IRS’s 

ability to provide faster refunds and respond to taxpayer inquiries on a 

timely basis. 

Delays in the delivery of modernized systems also affect the remediation 

of material internal management weaknesses. For example, IRS has 

reported a material weakness associated with the design of the master 

files. CADE is to build the modernized database foundation that will 

replace the master files. Continuing schedule delays will place resolution 

of this material weakness further out into the future. In addition, the 

Custodial Accounting Project is intended to address a financial material 

weakness and permit the tracking from submission to disbursement of all 

revenues received from individual taxpayers. This release has yet to be 

implemented, and a revised schedule has not yet been determined. Finally, 

the Integrated Financial System is intended to address financial 

management weaknesses. When IRS submitted its fiscal year 2003 BSM 
Page 9 GAO-04-438T 

expenditure plan, release 1 of the Integrated Financial System was 

scheduled for delivery on October 1, 2003. However, it has yet to be 

implemented, and additional cost increases are expected. 

Given the continued cost overruns and schedule delays experienced by 

these BSM projects, IRS and CSC launched internal and independent 

assessments during 2003 of the health of BSM as whole, as well as CADE. 

Table 2 describes these assessments. 

Table 2: BSM Assessments Undertaken During 2003 

Subject 

Organization conducting 

assessment Purpose 

Root cause analysis IRS To review data from historical 

documents and interviews to 

determine root causes for 

schedule delays and cost 

increases 

PRIME review Bain and Company To identify root causes of 

breakdown in CSC’s business 

processes and engagement 

model and provide recommended 

solutions 

IRS Office of 

Procurement 

Assessment 

Acquisition Solutions, Inc. To assess the efficiency and 

effectiveness of the IRS 

procurement organization 

structure, employment of best 

practices, management and 

administration, staffing, and to 

briefly review BSM contracting 

CADE assessment SEI To provide an independent 

technical assessment of CADE 

program history and the feasibility 

of future plans 

Source: IRS 

The IRS root cause analysis, PRIME review, and the Office of Procurement 

assessment revealed several significant weaknesses that have driven 

project cost overruns and schedule delays, and also provided a number of 

actionable recommendations for IRS and CSC to address the identified 

weaknesses and reduce the risk to BSM. Deficiencies identified are 

consistent with our prior findings and include 

Internal and 

Independent 

Assessments of BSM 

Have Identified 

Significant 

Weaknesses and Risks 
Page 10 GAO-04-438T 

• poorly defined requirements, 

• low program productivity levels, 

• project scope creep, 

• IRS/PRIME role confusion, 

• immature management processes, 

• ineffective integration across IRS, and 

• insufficient applications and technology engineering. 

As noted, CADE release 1 has experienced significant reported cost 

overruns and schedule delays throughout its life cycle, and has yet to be 

delivered. SEI’s independent technical assessment of CADE pointed to 

four primary factors that have caused the project to get off track and 

resulted in such severe cost and schedule impairments: (1) the complexity 

of CADE release 1 was not fully understood; (2) the initial business rules 

engine effort stalled; (3) both IRS and PRIME technical and program 

management were ineffective in key areas, including significant 

breakdowns in developing and managing CADE requirements; and (4) the 

initially contentious relationship between IRS and PRIME hindered 

communications. SEI also warned that CADE runs the risk of further 

trouble with later releases due to unexplored/unknown requirements; 

security and privacy issues that have not been properly evaluated (e.g., 

online transactions are different from the way IRS does business today); 

dependence on an unproven business rules engine14 software product; and 

the critical, expensive, and lengthy business rules harvesting15 effort that 

has not yet been started. SEI offered several recommendations to address 

current CADE issues and reduce project risk in the future. 

 14A business rules engine translates business rules, or processing criteria (e.g., income tax 

refunds of $x or more are held for administrative review), into executable computer code 

which processes transactions related to a tax form, and selects and executes correct rules 

based on the tax year and tax form. 

15Business rules harvesting refers to the process of extracting, defining, and documenting 

tax processing criteria from a variety of sources, including IRS subject matter experts, 

legacy system source code, the tax code, and various other paper documents. 
Page 11 GAO-04-438T 

Based on these assessments, IRS identified a total of 46 specific issues for 

resolution in the following six areas, and developed a BSM action plan 

comprising individual action plans to address each issue: 

• Organization and Roles. Immediate steps are needed to clarify 

IRS/PRIME roles and responsibilities and clearly define decisionmaking authorities. 

• Key Skills & Strengthening the Team. Strengthened skills and 

capabilities are needed in such key areas as project management and 

systems engineering. 

• Technology–Architecture & Engineering. More focus is needed to 

improve current systems architecture integration. 

• Technology–Software Development Productivity & Quality. 

Improvements in product quality and productivity are essential to 

strengthening software delivery performance. 

• Acquisition. Contracting and procurement practices require major 

streamlining to improve overall contract management. 

• CADE. Delivery of CADE release 1 will require aggressive focus and 

attention, and a business rules engine solution requires additional 

evaluation. 

These 46 issue action plans were assigned completion dates and an IRS or 

PRIME owner was assigned to take the lead in implementing each plan. 

IRS and PRIME each also assigned a senior-level executive to drive the 

execution of the issue action plans, identify and help mitigate 

implementation hindrances or roadblocks, and ensure successful 

completion of all planned actions. To assess the efficacy of the BSM action 

plan, MITRE was tasked with conducting an independent analysis and 

provided feedback to IRS on the effectiveness of the specific issue action 

plans to address the associated findings/recommendations and correct any 

problems found. 

IRS has reported making steady progress with implementing the BSM 

action plan. According to the IRS BSM program office, as of late January 

2004, 27 of the 46 issue action plans have been completed. Examples of 

completed actions include (1) making business owners and program 

directors accountable for project success; (2) assigning teams to 

investigate and resolve problem areas on key projects such as CADE, the 

IRS Is Acting to 

Resolve Issues 

Identified in the BSM 

Assessments 
Page 12 GAO-04-438T 

Integrated Financial System, and e-Services; (3) aligning critical 

engineering talent to the most critical projects; (4) increasing the 

frequency of CADE program reviews; and (5) issuing a firm fixed-price 

contracting policy. 

Significant further work remains to complete implementation of the 

remaining 19 open issue action tasks. Bain & Company—which conducted 

the independent review of PRIME—has been hired to facilitate the 

implementation of various issue action plans within the Organization and 

Roles challenge area, while IRS has also contracted with SEI to conduct 

further periodic reviews of the CADE project. 

Additionally, the IRS Oversight Board recently issued a report16 on its own 

independent analysis of the BSM program, which made several 

observations and recommendations that are consistent with those 

discussed here. IRS has conducted an analysis of this report to reconcile 

the board’s recommendations with those that are currently being 

addressed in the BSM action plan. As a result, IRS plans to open two 

additional issues and action plans to address (1) rationalizing and 

streamlining oversight of the BSM program, and (2) determining and 

maintaining a manageable portfolio of projects. IRS expects to complete 

the majority of the BSM action plan by end of April of this year, and fully 

implement any remaining open actions by the end of the calendar year. 

Further, during 2003, the Treasury Inspector General for Tax 

Administration performed several reviews related to management of the 

BSM program and for specific BSM projects. These reviews identified 

several issues, including those related to compliance with the defined 

management and project development processes, full implementation of 

disciplined project testing processes and procedures, IRS’s cost and 

schedule estimation process, and contract management. IRS management 

reaffirmed their commitment to fully implement key management and 

project development processes. 

IRS’s multibillion-dollar BSM program is critical to agency’s successful 

transformation of its manual, paper-intensive business operations and 

fulfilling its restructuring activities. The agency has made important 

 16IRS Oversight Board Special Report, Independent Analysis of IRS Business Systems 

Modernization, December 2003. 

Concluding 

Observations 
Page 13 GAO-04-438T 

progress in establishing long-overdue modernization management 

capabilities and in acquiring foundational system infrastructure and some 

applications that have benefited the agency and the public. However, our 

reviews, those of the Treasury inspector general, and the recently 

completed internal and independent assessments of the BSM program 

clearly demonstrate that significant challenges and serious risks remain. 

IRS acknowledges this and is acting to address them. 

To successfully address these challenges and risks and to modernize its 

systems, IRS needs to continue to strengthen BSM program management 

by continuing efforts to 

• balance the scope and pace of the program with the agency’s capacity 

to handle the workload, and 

• institutionalize the management processes and controls necessary to 

resolve the deficiencies identified by the reviews and assessments. 

Commitment of appropriate resources and top management attention are 

critical to resolving the identified deficiencies. In addition, continuing 

oversight by the Congress, OMB, and others, as well as ongoing 

independent assessments of the program, can assist IRS in strengthening 

the BSM program. 

Meeting these challenges and improving performance are essential if IRS 

and the PRIME contractor are to successfully deliver the BSM program 

and ensure that BSM does not suffer the same fate as previous IRS 

modernization efforts. 

Mr. Chairman, this concludes my statement. I would be pleased to respond 

to any questions that you or other members of the subcommittee may have 

at this time. 

For information about this testimony, please contact me at (202) 512-3317 

or by e-mail at daceyr@gao.gov. Individuals making key contributions to 

this testimony include Bernard R. Anderson, Michael P. Fruitman, Timothy 

D. Hopkins, and Gregory C. Wilshusen. 

Contacts and 

Acknowledgments 

(310521) 
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